Peter Schiff Asks "Is This The Green Light For Gold?"

It is rare that investors are given a road map. It is rarer still that the vast majority of those who get it are unable to understand the clear signs and directions it contains. When this happens the few who can actually read the map find themselves in an enviable position. Such is currently the case with gold and gold-related investments.

The common wisdom on Wall Street is that gold has seen the moment of its greatness flicker. This confidence has been fueled by three beliefs: A) the Fed will soon begin trimming its monthly purchases of Treasury and Mortgage Backed Securities (commonly called the "taper"), B) the growing strength of the U.S. economy is creating investment opportunities that will cause people to dump defensive assets like gold, and C) the renewed confidence in the U.S. economy will shore up the dollar and severely diminish gold's allure as a safe haven. All three of these assumptions are false. (Our new edition of the Global Investor Newsletter explores how the attraction never dimmed in India).

Recent developments suggest the opposite, that:

A) the Fed has no exit strategy and is more likely to expand its QE program than diminish it,

B) the U. S. economy is stuck in below-trend growth and possibly headed for another recession

C) America's refusal to deal with its fiscal problems will undermine international faith in the dollar.

Parallel confusion can be found in Wall Street's reaction to the debt ceiling drama (for more on this see my prior commentary on the Debt Ceiling Delusions). Many had concluded that the danger was that Congress would fail to raise the ceiling. But the real peril was that it would be raised without any mitigating effort to get in front of our debt problems. Of course, that is just what happened.

These errors can be seen most clearly in the gold market. Last week, Goldman Sachs, the 800-pound gorilla of Wall Street, issued a research report that many read as gold's obituary.The report declared that any kind of agreement in Washington that would forestall an immediate debt default, and defuse the crisis, would be a "slam dunk sell" for gold. Given that most people never believed Congress would really force the issue, the Goldman final note to its report initiated a panic selling in gold. Of course, just as I stated on numerous radio and television appearances in the day or so following the Goldman report, the "smartest guys in the room" turned out to be wrong. As soon as Congress agreed to kick the can, gold futures climbed $40 in one day.

Experts also warned that the dollar would decline if the debt ceiling was not raised. But when it was raised (actually it was suspended completely until February 2014) the dollar immediately sold off to a 8 ½ month low against the euro. Ironically many feared that failing to raise the debt ceiling would threaten the dollar's role as the world's reserve currency. In reality, it's the continued lifting of that ceiling that is undermining its credibility.

The markets were similarly wrong-footed last month when the "The Taper That Wasn't" caught everyone by surprise. The shock stemmed from Wall Street's belief in the Fed's false bravado and the conclusions of mainstream economists that the economy was improving. I countered by saying that the signs of improvement (most notably rising stock and real estate prices) were simply the direct results of the QE itself and that a removal of the QE would stop the "recovery" dead in its tracks. Despite the Fed surprise, most people still believe that it is itching to pull the taper trigger and that it will do so at its earliest opportunity (although many now concede that it may have to wait until this political mess is resolved). In contrast, I believe we are now stuck in a trap of infinite QE (which is the theme of my Newsletter issued last week).

The reality is that Washington has now committed itself to a policy of permanent debt increase and QE infinity that can only possibly end in one way: a currency crisis. While the dollar's status as reserve currency, and America's position as both the world's largest economy and its largest debtor, will create a difficult and unpredictable path towards that destination, the ultimate arrival can't be doubted. The fact that few investors are drawing these conclusions has allowed gold, and precious metal mining stocks, to remain close to multi year lows, even while these recent developments should be signaling otherwise. This creates an opportunity.

Gold moved from $300 to $1,800 not because investors believed the government would hold the line on debt, but because they believed that the U.S. fiscal position would get progressively worse. That is what happened this week. By deciding to once again kick the can down the road, Washington did not avoid a debt crisis. They simply delayed it. That is why I tried to inform investors that gold should rally if the debt limit were raised.Instead most investors put their faith in Goldman Sachs.

Investors should be concluding that America will never deal with its fiscal problems on its own terms. In fact, since we have now redefined the problem as the debt ceiling, rather than the debt itself, all efforts to solve the real problem may be cast aside. It now falls on our nation's creditors to provide the badly needed financial discipline that our own elected leaders lack the courage to face. That discipline will take the form of a dollar crisis, which will morph into a sovereign debt crisis. This would send U.S. consumer prices soaring, push the economy deeper into recession, and exert massive upward pressure on U.S. interest rates. At that point the Fed will have a very difficult decision to make: vastly expand QE to buy up all the bonds that the world is trying to unload (which could crash the dollar), or to allow bonds to fall and interest rates to soar (thereby crashing the economy instead).

The hard choices that our leaders have just avoided will have to be made someday under far more burdensome circumstances. It will have to choose which promises to keep and which to break. Much of the government will be shut down, this time for real. If the Fed does the wrong thing and expands QE to keep rates low, the ensuing dollar collapse will be even more damaging to our economy and our creditors. Sure, none of the promises will be technically broken, but they will be rendered meaningless, as the bills will be paid with nearly worthless money.

In fact, the Chinese may finally be getting the message. Late last week, as the debt ceiling farce gathered steam in Washington, China's state-run news agency issued perhaps its most dire warning to date on the subject: "it is perhaps a good time for the befuddled world to start considering building a de-Americanized world." Sometimes maps can be very easy to read. If the dollar is doomed, gold should rise.

The LBMA and Comex are primarily paper markets trading hundreds and hundreds of millions of ounces of gold and silver that do not exist every day. There is infiinite supply for those who accept it.

The price cannot move in a meaningful manner until the supply of physical gold and silver to the market dries-up (and they will). Until then, the price is simply set much like adjusting a screw each day.

"$240B per day in 2011, the equivalent of 5,400 tonnes total, or 2,700 tonnes changing hands every day! And that's from 64% of the LBMA members reporting, so it's likely higher, especially once you add in non-LBMA (retail) FOREX trading."

Which would dwarf what's happening in the physical market... not saying Asian demand is irrelevant by any means...

The trading of gold derivatives to set the gold price is artificially pricing gold far below any real market price reflecting demand.

The Chinese are only a fraction of the physical market that is being sucked completely dry at the artificially low price set by the unallocated/fake gold paper markets in London and NY.

Gold Core's paper from August estimates daily trading on the LBMA at 290 million oz per day. The vast majority of this volume is pretend gold that is trading on the LBMA.

This farce of a market creates an apparent oversupply of gold by trading gold nothings instead of gold - the result is that physical gold has screaming high demand now because the paper market and the physical markets have been divorced.

DUDE, without fofoas verbal diarrhea (which disproves a certain probability theory involving a monkey and typewriter): the Crimex and GLD are DERIVATIVE MARKETS, so your statement is somewhat of a non-sequitur. The gold market is all smoke and mirrors, and that's the way the big gold owners want it to be (since it keeps the arb rats and other momo chasers away)

interest rates will likely continue going down as they have for 34 yrs straight...the 10yr will likely make sub 1% lows in Obama's 2nd term...there will likely be no interest rate crisis. Apparently this is what the Fed and QE were made for.

US pays less now in total interest on our debt of $17 T than we did when debt was $10 T...that is the magic of a printing press w/in a ponzi...and so long as you get all other major currencies to do the same...nobodies currency collapses vis-a-vis anothers. Sick game but a game that can go on indefinitely.

Of course if commodities or PM's surged then the game would be over and currency debasement would cause a run out of one, many, or all fiat...but that is not happening. In $ terms, a single commodity is at new highs (cattle) and nearly all are well below their '08 highs (energy) or '11 highs (metals / PM's, grains, sugar, cocoa, coffee, OJ, cotton)...only other commodities along w/ cattle even near all time highs are lumber and hogs.

So, if the only avenues for the new liquidity is somehow all time highs in stocks, RE, and CRE...while commodities are not moving likewise...we must be honest that the game is not turning out as we envisioned. PM's are presently providing no protection. No forward statement here and no statement about PM's significant rise pre-'11...but since '11, commodities in general and PM's in particular are a bust. We can all guess why, the sustainability of that, but for now TPTB are winning if we judge by their desire to re-flate RE/CRE and stock bubbles and maintain ever lower interest rates while making all other assets as unappealing as possible. Discuss.

So the general tide in economic relations will remain deflationary -- with the necessity of currency creation in undreamed-of quantities to provide the optics of normalcy.

Yet, if the heartbeat of world capitalism is getting that weak, the situation is unstable. Any system this unhealthy must soon meet with some blow (natural or manmade) that puts the whole system back into unpredictable motion.

Money creation (and most of what governments are doing now) is playing Enron accounting with Mother Nature. She will not be denied for long.

See also: your shrinking grocery store products that get more expensive by the week.

People must eat to survive. Food cannot be printed out of thin air. People must be able to afford food, or they will riot. This is where we are right now. The .gov knows this and has been preparing accordingly with weapon purchases by DHS.

The food stamp allotment is gonna shrink next month. Less food in the grocery cart - less (junk) food in people's stomaches.

We should all plan accordingly ... because this shit ain't gonna go on indefinitely - because it can't.

i love watching old schiff interviews to see his transformation from nerdy dude to total bro. used to speak softly in a higher geeky voice back in the early 2000s, not entirely sure of himself, slouched over etc. now he's clearly confident that everyone else is The Asshole and just leaves a nice dump on the MSM puppetry's collective chest after he's finished himself off during all of his tv appearances now. (you're welcome for the imagery)

the timing is still very much in question. although if you listen to most people here--posters included--it sounds like it is, without a doubt, going to happen tomorrow. and if not tomorrow definitely the day after that. personally, im eyeing the 2016 election. something big is going to have to happen before then right?

Thanks for the imagery. I'm watching the gaps between debt ceiling "crises" close in parabolic fashion for timing. When they see that they need revisit the same glass ceiling on ever-shortening timelines, when it is clear to tptb that they are launching up a parabolic curve, and they do that trillion per day, that is when the timing will become more apparent.

Peter doesn't follow his own thinking through...if there are no functioning markets, then there should be no market function expected.

Take gold / s&p 500 ...from '09 to mid '11 they trade up similarly rising on QE liquidity and Fed's balance sheet expansion. Then, in mid '11 s&p 500 suffers flash crash same relative time gold reaches it all time high. BUT, from that point on despite ever more QE and Fed balance sheet expansion (and likewise for all CB's gloabally) gold begins falling while s&p 500 resumes its march ever higher. What were twins feeding from the same liquidity teat suddenly became opposites despite no change in liquidity. One begins withering while the other grows fat. Had gold continued on the trajectory it was on and the trajectory the s&p 500 resumed...gold would be somewhere around $2500 and other commodities likewise would have soared. But seems the liquidity teats were only made available to select Fed sanctioned sectors (equities, bonds, RE/CRE).

Look @ any gold / stock indice and you can see the total change. To expect a re-emergence of market based action now seems folly and simple hope over reason. I'm not saying don't own gold or silver, I'm just saying don't buy it for economic or financial reasons...the only reason to buy these now are based on political actions...not economic or financial markets.

exactly right. Zirp has put a continual bid under stocks and bonds. Gold broke down. It will continue to be this way until countries band together and truly start dumping the dollar. I could see all gold inventories being depleted at this point and everyone still trading it and happily settlling in cash and never demanding delivery. Banks/Countries etc. are all tied together this time around and if they blow somebody's brains out it ends up being mass suicide and they all know it and are under strict orders to play along forever.

I don't sleep very well in general. I'm an east coast guy so yeah it's late for me. I usually am up around 5am but the last few days I can't sleep. This market seems like total cruise control so I should be sleeping like a baby. I guess it just seems so easy lately that I am getting a bit concerned that complacency is going to get my ass kicked again and i always swore i would not let that happen.

as someone who spent time in those places, do you have a view on the future of the dollar? I am going to try for one more hour of sleep so I will catch you on here at a different time. It ain't exactly early there either right now so no need to answer that now. Have a good night man and let's pick it up later. I always appreciate input from people standing/having stood in places I have not. later man.

Hambone, while I wholeheatedly agree with your analysis here, I would sugget a careful reading of "When Money Dies" could be helpful.

The German widow is told by her banker to transfer her savings into gold, but fails to listen. In the coming years, both gold and stocks rise in price- keeping pace with inflation, until hyperinflation kicks in and then only gold becomes a safe haven.

Dollar value effects business, making hyperinflation a business killer. Industry put as much money out of reach, in other currencies, in other countries, until it all just failed. Failure happened quickly, at the tail end of the hyper episode. Only gold and food survived.

I think there are bigger problems at work here than gold or currency values. There is the reinstitution of serfdom, the destruction of liberty and the mass hyponotic suggestions that retrain whole populations to believe what they are told. Important ideas are hidden or debased. People no longer understand what money is or how important freedom remains.

What benefit is it, if we gain income in relation to others, if a power arises that merely confiscates it away? We forget the power of tyranny, the all consuming nature that re-orders lives. The Elite class (especially the zionists) are driving this train and they alone know the destination. However, if history is a guide, the destination is slavery. Slavery has evolved into new forms that deceive the people, but it is slavery all the same.

I haven't read Fergusson in a few years, but IF he was pushing the notion that only gold and "food" survived the episode it is utter BS.

Stocks are an asset class, not an asset, so one much look at individual stock's (valuation) - P/E, P/B, or P/FCF are not irrelevant in such a context since an investor should be looking at what is the future earning CAPACITY and DURABILITY of the underlying assets e.g. Land and PPE (customers and intellectual property are about as durable as Uncle Ben's 1-ply). Krupp, Benz, BMW, Bremer Vulkan, and a host of others all survived the mad money printers of Weimar. There is a place for gold, but it is extremely limited, just like the supply of real gold.

The situation of some poor widow and Gustav Krupp are worlds apart, but had he went to gold, granny wouldn't have even had the option to buy gold in the first place.

Stocks did extremely well as an asset class (better than gold) until the currency collapse- then they collapsed also. Gold did not.

Please show me the future earning capacity of assets in the rust belt, Detroit, etc. Krupp, Benz and the others moved their operations out of country to survive the collapse, maintaining their capital in foreign currencies and gold.

I agree that gold has limited opportunities, but stocks are even worse- which is the point. Now, if you can profit short term and know when to get in and out, as well as escape capital controls or currency debasement (which could be global) you obviously have it all figured out. Further, by the time the widow figured it out- she couldn't go to gold- it was not available. Krup had bought it up, as well as others.

Since most of us are not in a position to bid for scarce capital in a time of crisis, we can only plan for reasonable possibilities.

The rust belt isn't comparable, because those theoretically productive assets were abandoned.

But he's the rather more substantial problem I have with the gold-bug line- If granny had simply sold her marks and bought GBP in 1921 when gold was trading at 535p/oz she could have sold those very same fiat that JM Keynes himself was busy devaluing to pay off Britain's War/Empire debts and then bought 25% MOAR GOLD! with the same supply of JMK's finest 1-ply in 1925 at 427p/oz after the hyperinflation.

If granny had a stock broker and wanted to look beyond the Continent or the Frankfurt exchange, in 1921 the US was just coming out of a depression and kicking off the Roaring 20's -- she could have ridden the DOW from a low of 63 up to just over a hundred, and then bought EVEN MOAR GOLD! without her broker outperforming his benchmark. And if she was Jewish then she would already have the paper share certificates to burn at over 150 prior her flight from the Nazis in the later 30's (and that price includes the unrealized losses in the 1929 crash, and bypasses the risk of George Soros or his daddy finding the finding the gold Charlie Munger thought it was wise to sew into their clothes, after the Nazis had already slammed the exit door closed on that maneuver).

In order to say stocks didn't do as well as gold (which didn't do as well a Keynes) you have to confine yourself to the local stock market (priced in a hyper-inflating currency) and pick losers (either by virtue of timing or bankruptcy). It's certainly possible, and there is no bankruptcy risk in physical gold, but that doesn't make gold the "best investment".

The rust belt isn't comparable? The misallocation of capital is ALWAYS comparable. You're too smart to take a cop out.

As for goldbugs, they do have a problem, this time is different: markets no longer exist. People no longer understand what money is, therefore they don't think of gold as money. Depending on historical behavior is pretty foolish in this situation.

As for the widow, like most citizens, she is not a financial whiz. How many people know how to invest in foreign stocks and bonds- remember, this is 1919. You ignore ignorance to make your argument.

The stock market and all exchanges function to separate people from their wealth. All trading is insider trading, just some people are above the law. Now, that being said, you can profit handsomely in stocks, etc., but like a casino, the majority will be fleeced. They play percentages and win with them. They can afford to lose a bit here and there if it keeps everyone else coming in the doors.

Gold is never the best investment, power and influence are. Unfortunately, I don't have any and I doubt you do either. You're too smart to be picking arguments, when you're much better at educating. We need more people with the intelligence to persuade. It isn't as much fun, but it is useful.

The differences this time are certainly problematic- ALL the governments are in over their head and would rather acquire debt slaves or pilfer private savings and assets than admit to their folly, and they are are willing to gang up with each other against their own citizens. Which is why diversity is that much MORE important. Granny is probably not going to learn how to properly hedge a long equity or physical commodity position (apologies to my great aunt), so absent diversity one has the risk of being wrong, getting emotional at the wrong moment, or being targeted by the State. But I do think you're letting the old-timers off a bit easy. People who aren't in the business of money or don't do business with a lot of money can be excused, but the warning signs were all there, whether its Dr. Copper or the collapse in the bund/gilt spread (actually it was private paper back then), collapsing loan issuance, exploding avg. quarterly payrolls, in fairness there is a lot of noise in the 1918/19/20 data between the war readjustment and larger post-war recession, but how could it not be obvious what the government was doing by 1921? Anyway, I need to call it a night over here-

Not much has changed with respect to the paper gold sellers. As long as they can dump a million ounces at market whenever they want, gold is not going much higher until they stop, or until they lose control.

Absolutely. This is not the gold market of the 70s and 80s (where real gold actually traded (much of it on the Winnipeg exchange, strangely)) which is why the gold price projections today of the gold 'experts' is continually proved wrong.

No, not until somebody with very deep pockets starts gobbling up the large destructive sell orders the Fed places throguh JPM that slams the market lower. One of these days, one of those 10 million ounce market sell orders is going to be met with a simple "buy it - you got anymore"? When that happens it's over for the manipulation and gold goes orbital in a very, very short time frame.

Gold is manipulated. That's it. The manipulation will go on until the Comex collapses and will not stop one minute earlier. Because of this, no technicals can be relevant in the long term. There is no interest from ANY big player in stopping this game. The West wants to keep it going as long as possible. The East wants to keep buying at artificial prices as long as possible. The Chinese know that eventually, to challenge the reserve status, they will have to peg their currency to gold, but ONLY at time zero, at the start. Thereafter, they are as much interested in levering it off gold as any one else. They will do this only when the cost of holding treasuries surpasses the benefit of pegging their currency to gold and not one minute earlier. The smart investor will have purchased as much gold as possible before time zero and sell at time zero. He will not hold any thereafter and the trade will be to reallocate proceeds of gold sale to real estate in a jurisdiction that will not repress landlords...wherever that place will be, if any.

But gold ties will be loose at best, for any currency. China needs gold cause it is a newcomer to the big leagues, plus it has a history of communism....

I think SDR rather than an exchange of single reserve currency. That is for many reasons. China is one (no western financial fuck will follow them alone). Plus they will not loose the ability to deficit finance, ever. ever. ever.

SDR will be weighted basket which includes china. China is getting gold to get at the table. But the game is the same. Debase, deficit finance. The game continues same as before. To believe otherwise is crazy.

All the centrally planned financial systems in the east and west will issue 'gold backed' or 'gold standard' currencies that they will print the bejeezus out of. They will not willingly ceed central control by intruducing true gold money.